Monday 23 May 2022 | 09:47 | SYDNEY
Monday 23 May 2022 | 09:47 | SYDNEY

Transport: Input costs matter


Mark Thirlwell

6 June 2008 16:45

Sam’s post on global transport costs caught my eye, specifically his thoughts on the relationship between transport costs, technology and oil prices.  It brought to mind this fascinating 2007 paper by David Hummels in the Journal of Economic Perspectives, which looks at the evolution of transport costs after the Second World War (that link is subscriber-only, but a draft version is available here [pdf]). 

Hummels calculates that while technological developments like containerization did significantly reduce ocean shipping costs, during the 1970s this positive effect was offset by a dramatic rise in input costs (big increases in port and fuel costs in the era of the OPEC oil shocks). Hummels estimates that it was only after crude oil prices began to drop in the mid-1980s that ocean shipping costs began to fall, embarking on a 20-year decline. Thanks to higher oil prices, and increased global demand, they have been on the rise again in recent years.  So yes, technology is extremely important.  But the cost of inputs can matter a lot too.

Incidentally, the Hummels paper notes that air freight is a good example of where technological innovation has produced a sharp decline in costs.

Photo by Flickr user Nelson Cruz, used under a Creative Commons license.